Despite the Nigerian Government’s proactive handling of the COVID-19 pandemic, and the recent growth improvement, the International Monetary Fund (IMF), still believes socio-economic conditions in the country remain a challenge.
In particular, the Executive Board of the IMF noted that Nigeria’s economic outlook remains subject to significant risks, including from the pandemic trajectory, oil price uncertainty, and security challenges.
They therefore emphasized the need for major reforms in the fiscal, exchange rate, trade, and governance areas to lift long-term, inclusive growth.
The Directors highlighted the urgency of fiscal consolidation to create policy space and reduce debt sustainability risks.
In this regard, they called for significant domestic revenue mobilization, including by further increasing the value-added tax (VAT) rate, improving tax compliance, and rationalizing tax incentives.
These recommendations followed the conclusion of the Executive Board’s Article IV consultation with Nigeria, which usually happens yearly with member countries.
In a statement from the Fund, the Directors also urged the removal of untargeted fuel subsidies, with compensatory measures for the poor and transparent use of saved resources, while also stressing the need to further strengthen social safety nets.
Subsidy removal has been a ding-dong issue, between the government and the organised labour. The incumbent administration had to shift the decision by another 18 months, if the government removed the funding, which labour said would impoverish the masses further.
However, the Petroleum Industry Act (PIA) 2020 already proscribed the continuation of fuel subsidy.
Monetary, fiscal support
In the areas of monetary and fiscal support to sustain growth, the statement reads: “The Directors welcomed the removal of the official exchange rate and recommended further measures towards a unified and market-clearing exchange rate to help strengthen Nigeria’s external position, taking advantage of the current favourable conditions.
“They noted that exchange rate reforms should be accompanied by macroeconomic policies to contain inflation, structural reforms to improve transparency and governance, and clear communications regarding exchange rate policy.
“Directors considered it appropriate to maintain a supportive monetary policy in the near term, with continued vigilance against inflation and balance of payments risks.”
Exchange rate reforms should be accompanied by macroeconomic policies to contain inflation, structural reforms to improve transparency and governance, and clear communications regarding exchange rate policy.
IMF also encouraged the authorities to stand ready to adjust the monetary stance if inflationary pressures increase, and strengthen the monetary operational framework over the medium term—focusing on the primacy of price stability—and scaling back the central bank’s quasi-fiscal operations.
The Directors welcomed the resilience of the banking sector and the planned expiration of pandemic-related support measures. They agreed that while the newly launched eNaira could help foster financial inclusion and improve the delivery of social assistance, close monitoring of associated risks will be important.
They also encouraged further efforts to address deficiencies in the AML/CFT framework, and emphasized the need for bold reforms in the trade regime and agricultural sector, as well as investments, to promote diversification and job-rich growth and harness the gains from the African Continental Free Trade Agreement (AfCFTA).
They noted that improvement in transparency and governance are crucial for strengthening business confidence and public trust, especially in COVID-19 emergency spending.
Amid concerns for the country’s rising debt and sustainability, the IMF Directors assert that Nigeria’s capacity to repay the Fund is adequate.
They encouraged addressing data gaps to allow timely and clear assessments of reserve adequacy.
